With the annual expense of college education increasing steadily over the past decade or so, the rate of student loan debt has ascended globally. Unsurprisingly, a large number of borrowers have a hard time repaying their loans, resulting in default or borrowing more money. Add to this the pressure of saving money and getting your personal finances in order. The only way to reverse this trend is to impose a clear financial strategy that will allow college graduates to make their payments sooner than later without giving up a comfortable lifestyle. Here are some tips to strike that balance when you are repaying student loans!
Committing to paying your loan requires financial discipline and the ability to generate enough funds to make debt repayments. If you find yourself financially strained due to multiple obligations, look for ways to increase your income. Make an effort to secure a second job or side gig to earn an additional stream of income. The intent is to direct your secondary income towards student loan repayment in order to settle it quickly. This way, the income earned through your primary source will remain untouched and can be used for making long-term investments to secure your financial future.
Having a budget is a vital personal finance management technique. The general rule of thumb is to pay off student loans while building reserves for future purposes, like buying a new house, marriage, or preparing for any unforeseen illnesses. Remember that solely saving at the expense of fast-tracking your education debt ignores the importance of saving for emergencies. Consult any finance expert and they would state that it can never be an all-or-nothing scenario. Rather, find a mid-way; continue to pay more than the minimum on your loan, focus a portion of your income on living expenses, and take discretionary funds out of every paycheck to contribute towards emergency savings.
While you are already burdened with a student loan, you must avoid taking on even more. Ideally, your credit card payments and other EMIs – in this case, a student loan – should not be more than 35 to 40 percent of your take home income. If you happen to cross this limit, you will end up saddling your finances and setting yourself up for major challenges if you were to lose your source of income for some reason.
You have probably heard everyone say this: pay attention to your spending habits to improve your financial health. This statement holds all the more value when you are repaying a major debt, like a student loan, wherein every rupee counts and can contribute towards repayment. The first step you can take is checking your bank statements at the end of each month. Focus on the areas you tend to spend a little too much on – whether it is shopping, entertainment, or dining out frequently. Become aware of these spending habits and set limits on them, so you can save yourself money and get out of the education debt faster. Conversely, the expenses you manage to cut down can be used for making high-return investments.
Savings are usually too easily whittled away by unexpected expenses, bills, debts, and unplanned indulgences. That is why, starting an automatic savings plan – wherein your money is directly transferred to a savings account on a particular date – can be an effective way to put money away. The good part about it is that you can decide, as well as alter, how much and how often you want to contribute to or cancel the plan. By making regular contributions, you not only build your savings but also earn high returns on the amount already contributed. At any given time, the accumulated lump sum amount can be used to pay off your student loan or other debts, or even better – to make long-term investments.
Ultimately, having a budget is crucial to successfully managing expenses, especially when repaying student loans. The better you get at budgeting, the more efficiently you can manage finances every month, which means you will worry less. With time, you will also be able to increase your savings that can be utilized to pay off a major portion of your student debt. This, in turn, will help you save money at a later stage as you will end up paying less interest. While you decide to manage personal finances and clear up education loans, becoming financially aware is a good practice to start with.
Want more advice for managing student loan debt and improving personal finances? Dezerv can help you make the right decisions!